Chapter 5: Receivables and Sales A company reports the following amounts at 12/31/YR2 (before any year-end adjustment). Management estimates 8% of the receivables will not be collectible. The company uses the percent-of-receivables method to determine bad debt expense. Credit sales for the year Accounts receiyable (A/R) Allowance for uncollectible accounts ("AUA") 1,000,000 90,000 1,800 Credit Bal. Estimated percent uncollectible. 6.0% Create T accounts for A/R, AUA and Bad debt expense to help with the following questions. Accounts Receivable AUA Bad Debt Expense 1 How much of the Accounts Receivable does management not expect to collect? 2 What amount will the company record as bad debt expense for the YR2? What amount will be shown on the 12/31 balance sheet for Net Accounts Receivable? 3 On January 5, YR3, the company writes off an A/R they determined is uncollectible. After the write off, what is the balance in AUA? The 4 amount of the write-off is: 200 After the write off, what is the Net Accounts Receivable?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Bad Debts:
Bad debts alludes to credits or extraordinary balances owed that are not generally considered recoverable and should be discounted. This cost is an expense of working with clients using a credit card, as there is in every case some default hazard built into expanding credit. Too much obligation, regardless of whether it is at a low loan fee, can turn out to be bad debts.
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